Wednesday, May 30, 2012

"There is a Paradigm Change coming that will threaten the very existence of every police union and police department across this country. Things that have worked in the past will fail under the new paradigm." - Ron DeLord speaking at Harvard Law School, 2006

This warning was not warmly received at the time. Some even laughed at the premise. They are not laughing today. Read this information from San Jose - read it closely and repeatedly. Operation Paradigm change has infiltrated every city in this country. You just have not identified its undercover agents. You should immediately prepare for the day the battle reaches the edge of your city, and it will - soon. It may already be too late.

The San José Police Officers' Association

THE EPICENTER: PENSIONS UNDER ATTACK

Hello again,

In this edition of The Epicenter, our attorney, Gregg Adam, with the law firm Carroll, Burdick & McDonough LLP, explains what Measure B is and what it would do to pensions.

If the Mayor overcomes the vested rights doctrine and reduces San Jose police officers' pensions, he will have created a path that other jurisdictions in California and elsewhere are sure to follow. And because Measure "B" is so clearly a frontal assault on the vested pension rights of current employees (as opposed to, say, efforts to force all future employees into a hybrid system), this will be high-profile litigation and any court decision will be precedential in California and beyond.

The City of San Jose has taken the position that while their proposed changes to our pension plan have legal risks associated with them; they feel their position is defensible:

Whenever an agency modifies retirement-related benefits, there are legal risks, particularly with respect to vested rights challenges. But as set forth below, we believe the Act overall is defensible against a potential legal challenge. We review key sections of the Act, and note that these sections involve different degrees of legal risk.

The eyes of the nation are on San Jose as a landmark June 5 measure to trim soaring pension costs puts residents of the 10th largest U.S. city at the center of a $1 million-plus battle for their votes.

Should San Jose's Measure B pass, as Mayor Chuck Reed and the business and taxpayer groups behind it expect, it would be a key test of a city's authority to reduce future pension costs that exceed expectations and revenues, despite earlier promises to employees. Government employee unions maintain that the measure is illegal, unfair and unnecessary.

"It will have nationwide implications on pension obligations and what we can and can't do when we get underwater," said Marcia Fritz, a Sacramento-area accountant and president of the California Foundation for Fiscal Responsibility.

Reform advocates see the San Jose pension measure and another one in San Diego as a gauge of voters' willingness to trim costly retirement for cops, firefighters and librarians whose unions have stalled lawmakers' efforts to impose major changes.

Steve Maviglio, spokesman for Californians for Retirement Security, a group representing public employees and retirees, said "we're keeping a careful eye on it" out of concern it will unleash a wave of similar efforts.

"If these measures pass by wide margins, it opens the door for communities around the state to engage in these ballot-box negotiations, which are harmful to the workforce," Maviglio said.

Locally, the stakes are huge. Reed has bet big that voters who twice elected him by wide margins and endorsed his tax hikes and arbitration reform to ease chronic budget deficits will once again come through for him at the ballot box on a measure that will define his career.

Test of union clout

For the city's employee unions who have long enjoyed public and City Council sympathy in this Democratic Party stronghold, the vote will test their clout.

"I guess you'd call it a pivotal moment, certainly in terms of Chuck Reed's legacy, and also in the ability or inability of organized labor to beat back the effort to change the pension system," said Larry Gerston, political science professor emeritus at San Jose State.

Reed proposed Measure B a year ago after failing to gain much traction erasing budgetary red ink that has soaked the city ledger for a decade, even after he championed new tax measures and fought to impose 10 percent, top-to-bottom pay cuts on city employees. Though the city projects a modest $9 million surplus in the upcoming budget, thanks largely to the pay cuts and hundreds of job cuts, a $22.5 million shortfall is expected the year after.

"One line item has had the largest impact on our budget," Councilman Pete Constant, a retired city cop and Reed ally, told a community forum on Measure B last week, "and that is pension contributions."

The city's yearly pension bill has more than tripled from $73 million to $245 million in a decade, far outpacing the 20 percent revenue growth and gobbling nearly a quarter of the city's general fund. A city audit blamed the rise on a combination of benefit increases, flawed cost assumptions and investment losses.

Measure B would limit retirement benefits for future hires and require them to pay half the cost of a pension. Current employees would keep the pensions already earned but have to choose either a more modest and affordable plan for their remaining years on the job or pay up to 16 percent more of their salary to continue with the existing benefit. Retirees could see their 3 percent yearly pension raises suspended up to five years if the city declares a fiscal crisis.

The city measure also would require voter approval for future pension increases and change disability retirement with the aim of limiting it to those whose injuries prevent them from working.

Gov. Jerry Brown has proposed pension reforms statewide, including a more modest "hybrid" benefit for future hires that combines smaller pensions with a 401(k)-type plan, and ensuring that current workers shoulder more of the cost of their pensions. But his plan has stalled in the Legislature.

San Diego's Measure B would replace pensions with 401(k)-type plans for all new city hires except police recruits. It would freeze the pay for current employees on which pensions are based for five years.

San Jose's unionized workers said they want to work with the city on pension reform, but Reed and other leaders refused their offers.

"The workers of San Jose want a sustainable pension," Karen McDonough, an environmental services specialist for the city active with her union, told a recent Measure B forum. "We all agree changes need to be made. We don't agree Measure B will get us where we need to be."

No resolution

Employees argue Measure B would take too big a bite out of workers who already have taken 10 percent pay cuts, higher health care costs and agreed to pay more for their underfunded retirement health benefit.

But city leaders see the pay cuts as temporary fixes, and Measure B would provide lasting changes long after they leave office. City officials said months of talks could not resolve core differences.

For residents like Steve Landau, a 49-year-old marketer for a technology company, the complex debate and white-hot campaign rhetoric are head-spinning. But he's inclined to go along with the measure simply because he sees services being cut to cover city benefits better than those of most taxpayers.

Tuesday, May 15, 2012

A long series of mistakes and bad decisions have brought us to the pension wars of 2012.. While there have been many blunders, by employees and employers, six stand out as major:

Granting retro-active benefits

Employers not making full contributions

Loop holes that permit spiking of pension benefits

Failure to educate constituents of the rationale for public pensions

Moving from pay-as-you-go to prepayment of pension benefits

Tying employer contributions to equity and real estate markets

There is a general public perception that pension benefits are no longer affordable. This perception has caused some cities and counties to call for a reduction of benefits and more contributions by employees. Some are proposing the complete elimination of pensions. Is this perception correct? No, but it has become the conventional wisdom among political leaders and the press, leading to a critical mass of citizens that are calling for drastic change. There are seven false, but deeply held believes, that are sustaining the “We can no longer afford public pensions” perception:

The United States Economy is in the grip of a severe recession

Local governments are going bankrupt

Local Governments are required to prepay pension benefits

Accounting rules dictate what a local government must contribute to pension plans